§ Statement of Purpose

The View from 1776 presents a framework to understand present-day issues from the viewpoint of the colonists who fought for American independence in 1776 and wrote the Constitution in 1787. Knowing and preserving those understandings, what might be called the unwritten constitution of our nation, is vital to preserving constitutional government. Without them, the bare words of the Constitution are just a Rorschach ink-blot that politicians, educators, and judges can interpret to mean anything they wish.

"We have no government armed with the power capable of contending with human passions, unbridled by morality and true religion. Our constitution is made only for a moral and religious people. It is wholly inadequate to the government of any other." John Adams, to the Officers of the First Brigade, Third Division, Massachusetts Militia, October 11, 1798.

§ Syndicate

The View From 1776

What Hath The Fed Wrought?

City Journal columnist Nicole Gelinas gives us a brief overview of the Fed’s failure to deal with the economy’s real problem: too much debt, in 2008, and still today. The implicit assumption underlying Obama administration policies and those of the Fed is that the way to deal with people who have more debt than they can repay is to encourage them to borrow still more money.

The “wealth effect” created by the Keynesian economic policies of former Fed chairman Ben Bernanke succeeded only in booming the stock market, enriching wealthy bankers, hedge fund operators, and speculators. Retirees and lower-income ranks of workers have been trashed by near-zero interest rate returns on their savings.

The productive economy has labored for nearly eight years under increasing governmental regulatory strangulation and deficit spending financed largely by the Fed’s quantitative easement, government-bond-buying policy. Recent slow gains in economic activity have been made, despite Obama’s administrative regulatory policies and constant threats of more regulation and higher taxes. In fact, the biggest engine of economic recovery has been hydrofracking to produce more petroleum and natural gas, which the Obama administration has sought to kill off and replace with government-subsidized efforts to force use of “green” energy.

Posted by .(JavaScript must be enabled to view this email address) on 01/25 at 09:34 PM

It is interesting to note that this week there is news that the Euro-zone is embarking on a spate of Keynesian-style quantitative easing maneuvers (that you decry) because the austerity policies (that you favor) have been a dismal failure and have sent their economies into a death spiral.

There couldn't be a clearer, real world test between the US economy and the Euro-zone economies to determine which economy theory has more merit.

Posted by .(JavaScript must be enabled to view this email address) on 01/25 at 11:55 PM

Mr. Jay, I have never advocated austerity policies of the sort that the IMF always prescribes for countries suffering foreign exchange drains and of the sort that EU governments have employed.

What I favor is getting government out of the economic recovery process as completely as possible, as the U.S. government did in 1920-21, the last quick recovery (from conditions far worse than we had in 2008).

Recessions occur because banks over-expand credit, abetted by the Fed, and people take on too much debt because of the loose-money euphoria thus created. Too much money is invested in basic production capacity because easy credit makes it appear that the economy will expand indefinitely (e.g., the dot-com boom in the 1990s and the housing boom leading up to 2008). The recession is thus a matter of far too much debt undertaken and far too much mis-allocated investment.

The only way to deal with it effectively is to remove government restrictions, cut taxes, and stand aside while businesses no longer viable are allowed to fall by free-market forces. The results can be very painful for workers in the over-expanded industries, but business in general will revive much faster than the eight-year drag we’ve experienced and wages will recover as the sound elements of the economy revive.

Administrations in the post-WW II world, including Obama’s, have mostly done the opposite. They’ve used taxpayers’ money to try to keep alive over-expanded or dying industries, while attempting to micro-manage the economy. The fact that the Fed has failed to anticipate every recession during its entire history ought to impose considerable caution upon us.

Posted by .(JavaScript must be enabled to view this email address) on 01/26 at 03:48 PM

Mr. Brewton,

I would argue that you are making a distinction without a difference. Calling for government to have no involvement in the economy during recessions is, in fact, effectively a policy of austerity. Not priming the economic pump or bailing out crucial sectors may appeal to the Misesian purist. However, had we followed your theory and let General Motors, Ford and Chrysler succumb during the '08 recession, we would also have collapsed their parts supplier networks and the web of thousands of businesses that branch out from them in a chain reaction of failures. This is the way depressions get started, and we should thank our lucky stars that Obama did not let that happen.

Obama used taxpayer money to temporarily bail out GM, money that has been repaid with interest, and thus prevented a general economic collapse that would have taken decades to recover from.

I find it fascinating that you advocate a strict "survival of the fittest" policy in economic terms, to allow the strongest industries to survive and propagate, but shy away from recognizing that that concept operates in biological systems.

Posted by .(JavaScript must be enabled to view this email address) on 01/28 at 10:55 AM